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5 Franchise Myths

A few months back, a friend proposed a franchise business to me that cost only P10,000. The business plan would allow me to choose whether to get a waffle stand, a burger stand and some other options I don’t recall anymore. She had forked over her money to the company before she met with me and she told me it would be a good business for both of us. I winced. I didn’t want any part in the business.

First, it had no track record and sounded too much like a network marketing business that was trying to sound like a franchising business. I know some very good companies that use network marketing strategies, but when there’s deception involved – even just a little bit – I know from experience that it’s best to stay away.

This article from MoneySense talks about five franchising myths to watch out for:

Myth #1: Bigger is better. Sure, bigger companies have stronger marketing and more sophisticated systems. But there are smaller franchisers in the market who provide more “tender loving care” to their franchisees.

Myth #2: Cheaper is better. You might get tempted to buy the first franchise you can afford. But be wary of little-known franchisers. “Ilan na ba `yung tindahan nila? Mayroon na ba silang commissary? Ilan na ba `yung franchisees nila? And be wary of scam artists. Many try to sell you concepts that are too good to be true,” Rommel Juan, president of Binalot (also the PRO of the Association of Filipino Franchisers, Inc. [AFFI]) cautions. To make sure you don’t get scammed by fly-by-night operators, check the members of organizations like AFFI (caters mainly to local businesses) and the Philippine Franchise Association (addresses both homegrown and foreign businesses).

Myth #3: Waiting is better. Dare to be the first franchisee in a system – that is, after your thorough research shows your prospective franchiser is established and reputable enough. There are quite a number of companies with a long track record of success in the market but have just started to open their business to franchising. Consider them.

Myth #4: A franchise makes it easy to get financing. Generally, lenders are more likely to finance franchises than unknown startups, but they won’t necessarily believe in you or the franchise you choose. With that, Rommel suggests that if you have minimal capital, tap your family and friends, or approach institutions known to help small businesses like Small Business Corporation and Planters Development Bank. “If you’re starting with a small fund, better prepare to lose it. There are many ways to tap funds basta, babayaran mo sila pagkatapos,” Rommel ends.

Myth #5: A franchise always spells success. A franchise’s success rate goes up to 95%, according to the US Department of Commerce, but a franchise alone will not instantly ring your cash register. Any venture involves risks, so work together with your franchiser to increase your chances of success. “We really screen our applicants. Hindi dahil may pera ka, puwede ka na mag-franchise. You should have the passion. Gauging the success rate of franchises, as expected, those who are more focused are more successful,” Rommel cites.

To give you an idea of the success rate among franchise philippines businesses, here are some figures from another franchising group, the Philippine Franchise Association: